Posted on Thursday November 02, 2017

What to anticipate when buying your first house

You've decided to buy your first property, a major decision entailing a sizeable investment. What steps will you need to go through? What exactly can you expect? Here are a few important factors to consider, to ensure that you're well prepared, and to help you avoid unpleasant surprises.

The balance sheet and the budget

When preparing to purchase a property for the first time, it's essential that you put together both a balance sheet and a budget. Why? Because when you're fully apprised of the exact state of your finances, of just how much money you'll need to borrow and what your obligations are, you'll be in an excellent position to plan ahead. You'll have a precise handle on your financial ability and on how much room you have to maneuver, and you'll know exactly what type of property on which to concentrate your search.

The obligatory down payment

When you purchase a property, you're obliged by law to make an initial payment drawn from your assets: the down payment. Obviously, the larger the down payment, the less your loan will be. Usually, it comes to 20% of the cost of the property. For example, if the property is selling for $300,000, your down payment should be $60,000.

Don't have that kind of money? Not to worry! It's possible to purchase a property with a smaller down payment, between 5 and 20%. You must then obtain mortgage insurance from the Canadian Mortgage and Housing Corporation. The interest rate corresponds to a percentage of your mortgage, e.g.:

Thus, for the aforementioned $300,000 property, a minimum down payment of $15,000 would be required and a premium in the amount of $11,400 would be incorporated into your loan repayment.

Where can you find the necessary funds? There are several ways:

• use your personal savings or money accumulated in a TFSA;  
• use your RRSP savings in accordance with the Home Buyer's Plan (HBP). You may withdraw up to $25,000 from your RRSP under the HBP. If you are a couple, your spouse may also withdraw $25,000, which will allow you to make a total down payment of $50,000. You will then have 15 years, beginning from the second year following the property purchase, in which to put the money back into your RRSP, so as to avoid paying tax on the withdrawn amount;
• borrow the money from a friend or relative;
• receive a donation

A good way to know the exact amount of money you'll be able to borrow for the purchase of your property is to apply for a pre-authorized loan. This way you'll have a good idea of the price range within which you can operate when scouting out your new home.

Additional expenses to anticipate

When putting together your budget, make sure to plan ahead for various expenses that will be added on during the buying process, in other words, the start-up costs:

• inspection: if you buy a previously owned house, a home inspection is required. A visit from a qualified inspector will give you a good idea of the overall condition of the property, as well as what work, if any, needs to be done;
• notary or lawyer fees: all the documents relative to the purchase and sale of a property must go through the hands of a legal adviser, either a lawyer or a notary;
• home insurance costs;
• sales tax, if you have chosen to have a new house built;
• moving costs and fees for reconnecting services, such as phone, internet, electricity etc.;
• you might also require some basic maintenance equipment such as a lawnmower or a snow blower. These purchases will be spread out over the following months, as needed.

Finding the ideal house

Once the financial issues are settled, you'll be anxious to begin the search for your dream house, while keeping your budget constraints in mind. Make sure you establish and stick to firm priorities among your particular specifications, in order to avoid impulse buys. The purchase of a property is a major decision that you certainly don't want to look back on with regret.

All real estate people will tell you: location is at the very top of the list of things to consider. Why? Because it will directly impact your quality of life. If you hate driving or having to endure a long commute to work and if your workplace is situated in the heart of downtown, the suburbs probably aren't your best option.

Think also about how many rooms you want: are you planning to start a family soon? If so, anticipate how many rooms your future children will need. Do you work from home? You may need a home office space set somewhat apart from the general living area.

What type of property are you looking for? A detached house? A semi-detached? A duplex? A condo? There are pros and cons to each of these options. If you need peace and quiet, a townhouse might not be the best solution. If you hate yard work, choosing a condo can completely eliminate this burden.

Have you heard about tiny houses?

It's a growing trend all over the world.

Here's the idea: rather than having to go into debt over extended periods, some adventurous folks prefer to acquire small plots of land upon which to build a highly functional ?tiny house.'

For first-time buyers, this can be the perfect compromise: a living space of roughly 500 square feet, for an investment of less than $100,000. And despite their small size, these tiny houses offer real comfort in exchange for a minimum of upkeep.

Something to consider!

 

Making an offer to purchase

After researching and looking at various properties, you've finally found THE house. It's perfect: great location, close to your work, not too much renovation required, rooms the right size, etc. It's also within your established budget. Now it's time to make an offer to purchase. If you're using the services of a real estate agent, he/she will accompany you through this step and will fill out the forms for you.

Once your offer to purchase is made, two things can happen: the seller will accept, or he/she will make you a counteroffer. This counteroffer won't necessarily change the asking price. It might have to do with certain selling conditions, such as the closing date. It's up to you to refuse or accept. If you refuse, then you will submit your own counteroffer. Negotiations will continue until you and the seller reach an agreement. Once the offer is accepted, it is final for both parties. The last step is the signing of the purchase agreement before a lawyer. He/she will take care of all the details involved in the transaction, from reviewing various documents to transferring the funds to the seller, in your name. Your financial institution will take care of sending your payment directly to the lawyer.

You are now a homeowner: nothing left to do but move in and make the house your very own!